Download I`m providing some explanation of the questions on the exam that

I’m providing some explanation of the questions on the exam that most students had
difficulty with on the mid-term. Since the numbering differed from test colour to test
colour, I’ve numbered the separately here.
Output
1.
B
C
TP
A
Num ber of w orkers
Refer to the graph above. At point B:
Correct Answer: marginal product is zero.
This is a total product curve (See the TP on the curve, and the label on the axis).
At B total product is at the maximum. At that point, adding one more worker
adds nothing to output, so marginal product is zero. Note that at C, marginal
product is negative, since adding more workers reduces total product (very silly to
hire those workers).
2.
Price
S
Pc
D
Q0
Q1
Quantity
Refer to the graph above. If the price is set at Pc:
Correct Answer: a non-price rationing mechanism must determine which buyers
will be able to purchase the product.
At Pc, the quantity demanded Q1 is greater than the quantity firms are willing to
supply, Q0. As a result, more people will wish to buy the good than can buy it.
Some method will determine who gets the good. If the product were gasoline, the
people most willing to spend long hours in line at fuel pumps might get it – that
would be the non-price rationing mechanism. If the product were housing units,
then landlords might choose people of the social status they prefer to rent to.
3. If the government imposes an excise tax on cars equal to $5000 per automobile, the
supply of automobiles will shift:
Correct answer: upward and the price of automobiles will increase by an
unknown amount.
Firms would like to collect $5000 more per automobile because they have to pay a tax of
$5000 per car. But as the price rises, the quantity demanded falls along the demand
curve. With the information given we cannot be sure how much the price will increase.
4. The law of diminishing marginal productivity holds:
Correct Answer: in the short run.
It holds whenever there is AT LEAST ONE fixed factor and other factors are
variable. In the long-run, all factors are variable, so diminishing returns do not
hold. Whenever all factors are variable, there is no need for diminishing returns.
If ALL factors were fixed, then inputs couldn’t change, so output couldn’t
change, so we couldn’t talk about any types of returns.
Output
5.
TP
A
B
C
Num ber of w orkers
Refer to the graph above. Within which section(s) of the production function is
marginal product increasing?
Correct answer: A.
Marginal product is the slope of the total product curve. In section A the slope is
becoming increasingly steep, so marginal product is increasing. Each added
worker as more to total product that the previous worker. In Section B total
product is rising, but at a decreasing rate. The slope of the TP curve is becoming
ever flatter. Marginal product is positive, but decreasing. Each additional worker
adds to total product, but a little less than the last worker. In Section C, total
product is falling. Marginal product is negative. An additional worker decreases
TP.